Includes Community Bank Exemptions
The federal regulators yesterday released the final regulations implementing the Volcker Rule restrictions on proprietary trading by depository institutions. While the rule applies to all insured institutions, it includes exemptions to protect community banks from compliance burdens.
Banks and their affiliates will no longer be permitted to engage in short-term proprietary trading for their own account, nor will they be allowed to own, sponsor, or maintain certain relationships with hedge funds and private equity funds. Community banks will be exempt from all compliance requirements if they do not engage in any of the covered activities defined in the final rule other than trading in certain government, agency, state and municipal obligations. See Final Rule. See Community Bank Guide.
A First Step, Not a Solution to TBTF
CBAI and ICBA have maintained for years the top priority of resolving too-big-to-fail, and the Volcker Rule in the Wall Street Reform Act of 2010 was viewed as an important element in that resolution process. Wall Street lobbyists worked to water down the provisions and subsequently influence rule-writing in their favor. The regulations released yesterday fall far short of resolving too-big-to-fail. More steps must be taken to insure that a mega bank failure won’t result in another economic crisis, a taxpayer-funded bailout, or special favors from the Federal Reserve. See WSBE Article.
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Momentum still exists to reduce the threat of another financial crisis due to banks deemed too-big-to-fail. Mortgage securities fraud, faulty foreclosures, Libor rate rigging, metals market manipulation, energy market manipulation, derivatives market manipulation, foreign exchange rate-fixing, Foreign Corrupt Practices Act probes into suspect hiring and contracting in Asia, and inadequate anti-money laundering controls are just a part of the daily dose of headlines and revelations concerning a wide variety of megabank misdeeds.
The drip-drip effect of these scandals has nearly drained the Too-Big-To-Fail bank’s reservoir of political support on Capitol Hill. All but their most stalwart apologists seem to have become mute and chastened in recent months by the “admissions of fact” that accompany the billions settlement payouts the banks have made to their victims and the fines and penalties coughed up to regulators.
The “unfinished business” of reining-in the mega banks is still a monumental task for regulators and legislators alike. While little meaningful statutory banking reform has made its way through the Congress and onto the President’s desk this year, momentum seems to be building for mid-term election year progress in 2014. See WSBE Article.
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Simon Johnson, professor at the Sloan School of Management at the Massachusetts Institute of Technology (MIT), recently authored a column which identifies some of the fallacies that may underlie the out-of-touch assessment of financial reform offered by Treasury Secretary Jack Lew last week.
Johnson asserts that the big six mega banks remain too-big-to-fail, the Federal Reserve will likely bail them out in the event of another crisis, and the regulators have no credible plans or remedies for divestiture or resolution in the event of a mega bank failure. He concluded, “There is a real danger that senior officials are ready to declare victory, while changing essentially nothing about the reality of what makes a global megabank too big to fail.” See Bloomberg Article.
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In a joint letter to the FDIC earlier this month, ICBA and the American Association of Bank Directors (AABD) expressed concern that the FDIC has approved only one new bank charter since 2011. They noted that the FDIC’s policy on de novo banks adopted in 2009 makes forming new banks prohibitive, and they4 called on the agency to consider a more flexible supervisory process tailored to the risk profile and business plan of de novo applicants.
CBAI has long advocated de novo chartering. In his regular visits with members of the Illinois Congressional delegation and federal regulators, CBAI’s David Schroeder has pushed for changes that encourage new banks. See ICBA Release. See Joint Letter.
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The Federal Emergency Management Agency (FEMA) has issued further guidance in the aftermath of the November 17th spate of tornadoes that ravaged parts of Illinois. First, FEMA recommends that survivors with homeowner’s insurance file a claim with their insurance company and then register for federal disaster insurance. See FEMA Release of 12/6/13.
FEMA also released guidance about registering for federal disaster assistance. FEMA emphasizes that a good rule of thumb is to register, even if you’re unsure whether you’ll be eligible for assistance. See FEMA Release of 12/7/13.
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ICBA testified before Congress on the need to advance legislation to relieve unnecessary regulatory burdens on community banks. B. Doyle Mitchell Jr., a third-generation community banker and president and CEO of Industrial Bank in Washington, D.C., told lawmakers that the Community Lending Enhancement and Regulatory (CLEAR) Relief Act (H.R. 1750) would support continued economic growth for often-underserved communities and small businesses.
In his testimony, Mitchell noted that the CLEAR Relief Act would:

State regulators are pushing for broader exemptions for community banks under new mortgage rules due to take effect next month.
In a white paper issued by the Conference of State Bank Supervisors on Monday, the regulatory group said they "vigorously" oppose the federal supervisory model of applying the same rules to all types of banks.
They urged federal policymakers to tailor a number of significant rules, including the Consumer Financial Protection Bureau's "Qualified Mortgage" regulation, to broaden exemptions to nearly all community institutions.
CBAI applauds the support of CSBS and state regulators for tiered regulations based on bank size. See Release.
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CBAI has received several inquiries from banks regarding whether they are legally required to submit a form which has been circulated by a company calling itself “Corporate Records Service.” The solicitation should be disregarded. Read CBAI Advisory.
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The U.S. is home to thousands of financial institutions of varying sizes and with varying portfolio complexities, but each faces unprecedented scrutiny from regulators, customers and shareholders. Each institution is also grappling with one area of particular focus: the calculation of the allowance for loan and lease losses (ALLL). Consequently, it can be helpful to gain insight into other financial institution’s processes for the allowance and bankers’ expectations regarding FASB changes. The following report contains a collection of data from polls conducted during multiple webinars Sageworks hosted during the spring and summer of 2013. Download the report here to see the poll results.
For more information on how Sageworks can help your bank streamline its ALLL methodology, contact Jami Princ.
About Sageworks
Sageworks is a financial information company that provides risk management solutions to banks across the United States. It is a CBSC Preferred Provider and was named CBAI Vendor of the Year in 2009.
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The extended low rate environment has put pressure on margins, enticing some institutions to “reach for yield” in higher risk assets and driving regulators to focus their attention on interest rate risk like never before. Examiners are now conducting mini-exams focused solely on Interest rate risk and collecting additional IRR data during regularly scheduled exams. Regulators are requesting an unprecedented amount of details. This webinar is designed to make bankers aware of the range of interest rate risk-related issues in future exams. Read More and Register Now.
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Four CBAI member banks have recently answered the call to support the Foundation’s “Investing in Higher Education” Campaign to enhance its scholarship programs. Nearly 40 scholarships are offered every year to deserving high-school seniors at-large and the children and grandchildren of community bankers. Additionally, one member bank is awarded a two-year scholarship to the Community Bankers School.
State Street Bank & Trust Company, Quincy has made an additional donation, moving it to the Silver level of giving. West Central Bank, Ashland and State Bank of Davis have become new, Bronze-level donors of the Foundation through recent donations. STC Capital Bank, St. Charles has pledged to also become a Bronze-level donor.
Need more information? Contact Andrea Cusick, CBAI SVP Communications and Foundation administrator, at 800/736-2224 or cbaicom@cbai.com.
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The U.S. House of Representatives passed legislation to address the problem of abusive patent-infringement demands. The Innovation Act of 2013 (H.R. 3309), which passed by a vote of 321-95, includes provisions that would make it easier for community banks and other small businesses to challenge the validity of frivolous patent claims. Read More.
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The decline in prepayments continued for the fifth month in a row for Fannie Mae, Freddie Mac, and Ginnie Mae I collateral while Ginnie Mae II pools increased slightly. Within 30yr pools, Freddie Golds fell 1.3 CPR to 13.4, Fannie 30s fell 0.8 CPR to 12.6, and Ginnie Is fell 0.5 CPR to 15.4. Ginnie IIs were flat from last month at 10.8 CPR. See Baker Market Update.
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The Federal Reserve Bank of Chicago held its 27th annual Economic Outlook Symposium on December 6th. According to the median forecast of its participants, the nation’s economic growth in 2014 is expected to increase at a pace above its historical average, inflation will edge higher, and unemployment will decrease slightly. See Chicago Fed Release.
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According to the St. Louis Fed’s Housing Market Conditions report for the third quarter, house prices rose and mortgage delinquencies fell across all seven states within the Eighth District. See St. Louis Fed Release.
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• The base g-fee (or ongoing g-fee) for all mortgages will increase by 10 basis points;
• The up-front g-fee grid will be updated to align pricing with borrowers’ credit-risk characteristics; and
• The up-front 25-basis-point adverse-market fee that has been assessed on all mortgages purchased by Fannie and Freddie since 2008 is being eliminated except in four states.

The FHFA said it expects these changes to produce an overall average g-fee increase of approximately 11 basis points based on Fannie and Freddie loan purchases in the third quarter of 2013 (represents an average increase of 14 basis points on typical 30-year mortgages and 4 basis points on 15-year mortgages). This follows FHFA-directed increases of 10 basis points in December 2011 and August 2012.
The agency also noted that, for loans exchanged for mortgage-backed securities, the price changes will be effective with settlements starting April 1, 2014. For loans sold for cash, the price changes will be effective with commitments starting March 1, 2014. Freddie Mac and Fannie Mae will work directly with lenders to implement the changes. Read More from the Agency.
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New monthly wage reports will help stop individuals from illegally collecting unemployment insurance benefits while working because officials will have the most up-to-date wage information available, according to the Illinois Department of Employment Security (IDES).
The new monthly reports also will help prevent fraud in the Medicaid and the Affordable Care Act programs because the up-to-date wage information will more quickly identify those who make too much money to qualify.
This first-in-the-nation effort shows Illinois takes seriously its responsibility to guarantee access to crucial safety net programs while at the same time protecting taxpayer money and leveraging technology to serve employers and workers in the most cost-efficient manner possible. See IDES Report.
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Customers of central Illinois community banks have reported receiving text messages on their smart phones informing them that their debit card has been deactivated. They are instructed to dial a local phone number to reactivate the card, presumably the bank’s number or its servicing agent, and follow the prompts. An automated messages greets the caller and instructs them to enter certain information including their debit card number. After entering the information, the caller is informed the card has been reactivated and the call is disconnected. As a result, the criminals now have the customer’s debit card information.
CBAI is encouraging community bankers to notify their customers of this scam. Below is a sample alert:
Phishing Alert: Fraudulent Texts and Phone Calls
We have been notified of a phishing attempt taking place in which debit card users are receiving text messages or phone calls indicating their debit card has been blocked. The card holder is prompted to enter the card number to unblock it or requested to call a number and provide information to unblock the card. These calls and/or texts are not from ____Bank Name____. Should you receive such a call or text, do not call the number or respond to the message in any way. If you have received a call or text and responded by giving out information related to your card, please contact Customer Service immediately to close your card.
Remember: Never give your card number, PIN, account numbers, or other sensitive information to anyone you don’t know and trust.Back to top

This article’s topic—protecting confidential information in paper documents—is the second in a three-part series authored by BankOnIT, a CBSC Preferred Provider. The first installment covered Confidentiality in Verbal Communications. The third installment will discuss steps that a bank employee can take to maintain or enhance the security of electronic information. See BankOnIT Article.
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Is Your Bank Prepared for a Disaster?
Your property insurance policy will cover the physical damage to your business, but additional coverage known as Business Interruption (or Business Income) Insurance is needed to cover the profits that would have been earned if your business were in operation. Read Article.
Cyber Liability Is Not Just for Large Banks
Like it or not, our world has undergone an online revolution. Social media, e-commerce, online banking, online storage of documents and the growing popularity of the “Cloud” bring benefits to financial institutions, large and small, as well as a new realm of risk! A cyber attack can come from sources within or outside your financial institution. Read More.
We All Make Mistakes. Is Your Bank Covered When This Happens?
Because you are in the business of providing a service to your client for a fee, you have an Errors and Omissions exposure. Errors and Omissions (E&O) is the insurance that covers your bank, or you individually, in the event that a client holds you responsible for a service you provided, or failed to provide, that did not have the expected or promised results. Read Article.
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During the last few years, both Congress and the various federal regulators have crafted revisions to lending regulations and have added new regulations as well. This has resulted in additional regulatory issues in every mortgage-loan transaction. As a result, lenders have been struggling to determine what they should do to assure that they make a safe and sound loan for the bank, and do so in a manner that will not create regulatory problems for the bank. The year 2014 will continue this process with new rules and mandates. This seminar will cover all aspects of mortgage compliance that a lender should know, including the 2014 rules and regulations as they now stand. This seminar is designed to discuss the compliance issues from the perspective of mortgage lenders and lending management. It also assists compliance officers, senior management, bank trainers, loan auditors, loan operations personnel, and others involved in the mortgage-lending compliance process to understand all of the new requirements and to share this information with others inside the bank. Leading this seminar is Bill Elliott, CRCM, senior consultant and manager of compliance at Young & Associates, Inc., Kent, OH.
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Community banks are confronted with a wide array of ever-changing regulations. In response to this training need, CBAI is pleased to present the “Compliance Institute” this January & April. An introductory course for those compliance officers who are either new to banking or new to their positions, this institute is designed to provide a comprehensive understanding of the major regulatory compliance regulations that have been determined to be “must knows” for all compliance officers. The Institute has been divided into two sessions, Operations/Deposit Compliance and Lending Compliance. Attendees can attend one or both sessions, depending on need. Offered in January, Session I, Operations/Deposit Compliance, addresses topics including compliance management, privacy of customer information, Fair Credit Reporting Act, Customer Identification Program, Bank Secrecy Act, Regulation D: Reserve Requirements, Regulation DD: Truth in Savings Act, Regulation CC: Expedited Funds Availability Act, and Regulation E: Electronic Funds Transfer Act. Bill Elliott, CRCM, senior consultant and manager of compliance, and Adam Witmer, CRCM, consultant, both of Young & Associates, Inc., Kent, OH, lead this institute.
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The Community Bank Directors’ College was developed in close conjunction with state and federal regulators, and is designed to teach individuals how to become a more effective, capable, and supportive member of a bank’s board of directors. Our goal is to graduate directors who return to your bank more active, more knowledgeable, more decisive, and become an even bigger asset to your community bank. The Directors’ College is offered once every two years and provides a thorough understanding of bank operations and bank directors’ responsibilities. The college is recommended for both new and seasoned bank directors. It is structured as two, two-day sessions offered on an annual basis. The second session, which may be attended as a stand-alone course, is being held at the Northfield Center in Springfield, Illinois, on January 15-16, 2014. Topics covered in the second session include financial management of community banks, regulatory exams, C.A.M.E.L.S., enforcement actions, and understanding shareholder value. It also examines understanding your community bank’s risk, strategic planning, community bank compensation, and an exam workshop with representatives from the FDIC, Comptroller of the Currency, Illinois Department of Financial and Professional Regulation, and the Federal Reserve Bank of Chicago.
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